Air Capital Insider

Cowen analyst thinks Textron ‘natural’ buyer for Learjet

Cowen and Co. analyst Cai von Rumohr said Textron Aviation’s Cessna is poised to take advantage of the recovery in the small to mid-size business jet market — and he makes a case for why he thinks Textron should acquire Bombardier Learjet.

In a research note to investors on Wednesday, von Rumohr said the number of business jets available for sale remain at an “all-time low” of 9 percent of the fleet, and the percentage of Cessna’s in-production business jets for sale have held steady for the past four months, “making smaller bizjets the strongest of all sectors.”

He said Cessna’s business should be bolstered by new products continuing into 2016 and 2017 by deliveries of its new widebody, flat-floor mid-size Latitude jet — expected to begin in the second half of this year following full type certification — and possibly a single engine turboprop, an update to the Citation XLS-plus jet and clarity on the company’s plans for the Citation Longitude business jet.

He also thinks Textron could benefit from an acquisition of Wichita-based Learjet, even though Bombardier has not publicly said it is selling Learjet.

Bombardier has been beset by cash flow problems as it works through a series of delays on its CSeries airliner program, which is two years behind schedule and its development costs have risen to $5.4 billion. Bombardier also has “paused” development of its Learjet 85, resulting in a $1.4 billion write-off and the layoff of 620 employees in Wichita and about 380 at its plant in Mexico.

“We think it would make sense to sell Lear,” he wrote, including to boost Bombardier’s liquidity and profitability while also allowing it “to focus on the ‘C’ series and Globals with no likely hit to profitable Challengers & Globals.”

“TXT (Textron) and ERJ (Embraer) are likely to be interested, with TXT a natural buyer since Cessna & Lear are both located in Wichita,” von Rumohr wrote. “Thus, TXT should have meaningful cost synergies to enable a win-win transaction, as it did with Beechcraft. Owning Lear also would give Cessna potential to convert Lear’s 2,800 customers to its bizjets.”

Officials from Bombardier and Textron Aviation declined Wednesday to comment on the report, saying their companies don’t comment on rumors and speculation.

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